Dead 3.0

It’s refreshing to see someone else thinking the same things I am. “Drama 2.0″ (no link, unfortunately) wrote about the Web 2.0 “Summer of Love.” The comment is reproduced in full below:

“Andy, It isn’t about the money, not at all. It’s pretty easy to get money. It’s about the opportunity, the connections, the mentoring, the camaraderie with the other teams and the ability for us to leave our full time jobs to bootstrap for 3 months.”

Andy: how is giving up 2-10% of your company to an angel for $5,000 base plus $5,000 per founder bootstrapping? The typical definition of a boostrapped business is a business that is started without external investors. See:

http://en.wikip…_%28business%29

As I’ve said before, from an investor standpoint, companies whose founders show an ability to make the most of limited resources are very appealing. If a guy comes to you and says that he was able to build his product without taking on any outside investment by using credit cards, home equity loans, creative deals with third parties, etc., that shows some real business savvy and determination. It also shows that he has enough confidence in what he’s doing to put his own arse on the line before asking me to put my money on the line. It doesn’t guarantee success, but if somebody is eager to give me 2-10% of their business for a low five-figure amount, I’m probably a bit underwhelmed. A huge part of success in business is being able to deal with challenges. If a founder is successfully able to deal with the challenge of not initially having easy access to the money he needs to get his product built or business off the ground, he’s proven some ability to deal with a major challenge, and that puts him above founders that can’t scrap together $10-$20K themselves.

I will not argue that the connections, mentoring, camaraderie, etc. you might find with a TechStars or YCombinator have no value whatsoever, but I frankly I think there’s too much back patting and ego-stroking going on with startups these days. In my opinion, when done to the excess we’re seeing today, it’s not healthy and distracts from the real purpose of a legitimate startup: creating a product that a viable business can be built around. Mentoring and camaraderie are fine up to a point, but you don’t build a company for social purposes and it seems like there’s a “Summer of Love” mentality to a lot of the Web 2.0 stuff that’s going on today.

“That is VC’s, angels, people that have made it already… These things cannot be priced. Also on top of that we all know how clique VC’s are and as such when VC’s and angels like those running the start-up schools give your startup some lovin’ then they’re all the more interested in you.”

The question is whether you really want or need loving from VCs. I think the biggest mistake young entrepreneurs make is thinking that VCs will lead them to the promised land. Many young entrepreneurs look at investors who have money and individiuals who have achieved success and are easily hypnotized. These people have one goal when they invest in your company: to make money and maximize their returns. Don’t forget that. If you are only capable of seeing the potential benefits of that and can’t see the potential problems it creates, you shouldn’t take their money.

In addition to capital, investors do supply you with advice, connections, etc., but at the end of the day they cannot guarantee the success of your business. If your business model isn’t solid, you’re not able to execute, etc., all their money, connections and past success are very unlikely to do you any good. As Guy Kawasaki says, everything he touches does NOT turn to gold - “If it’s gold, Guy will touch it.”

Additionally, when it comes to connections, don’t expect that your investors are just going to shower you with introductions to their most trusted contacts. Just because Sequoia invested in your company doesn’t mean that you can get a lunch meeting with Sergey Brin and Larry Page. I think many founders overestimate the extent to which investors can or will provide them with connections, and many investors oversell their “network” and how it will benefit portfolio companies. The bigger truth is that you can develop a network of key contacts on your own. Build a product that really takes off and you’ll find that important people will take your calls and may even call you.

“Your supposed to at the end of 3 months / have something to show for a bigger round of VC funding”

Pallet Jack: therein lies the problem. I think young founders are often seduced by the lure of VC and believe that it’s a requirement for building a successful technology company. Therefore getting locked into subsequent rounds of institutional funding when you participate in a program like TechStars or YCombinator doesn’t seem like a big deal. But it’s probably the biggest decision these founders will make when it comes to their startups. How you decide to finance your company dictates how the company is built, the timeframes for execution, the control founders have, the available exits, etc. Going the equity financing route is almost a requirement for some types of technology businesses, and it’s often a good route, but I think far too many founders think it’s the only route. They don’t realize that it can lead to failure just as often as it can lead to success.